"The 8 Steps to Buying Real Estate....
with No Money Down!"
The vast majority of creative financing involves seller financing. The more difficult a property is to sell, due to market conditions or poor maintenance, the easier it becomes to obtain seller financing.
The smart investor who is just starting out should focus on the primary goal of building a real estate portfolio. The proper use of leverage and an understanding of creative finance methods can easily overcome a shortage of cash. Anyone with average ability and desire can become a successful real estate investor.
If you want to buy real estate without a cash down payment, you must master the art of negotiation. First put yourself in the other person's shoes. No money down deals are everywhere if you can structure win-win transactions. Know what the seller wants. When you know what the seller wants, it becomes easy to show him or her why your offer is a good one.
In the final analysis, people only do business with people they like and trust. Since people long to be appreciated, recognized and respected, you should strive to give them what they desire.
In negotiating real estate deals, never resort to arguing. You will not profit from being "in the right." Putting together a great deal serves your investment portfolio far better than winning an argument. It is much more effective to give in to any and all minor points in order to obtain the major ones that create a favorable transaction for you. This is especially true if your goal is to buy real estate with no money down.
In searching for "no money down" real estate deals, look for the sellers motivation. Motivated sellers are the only kind you should deal with. As you develop your business sense you will easily be able to spot them. Remember, take advantage of the situation, not the person.
- Seller Financing... Offer to pay full price and have the seller take back a 20% second mortgage. You can obtain a 1st mortgage for 80% of the value of the property. Have the seller pay all closing costs (up to 6% of the purchase price) and add that amount to the second mortgage. Remember, you're only working with people who are highly motivated to sell.
Balloon Payments... These are used as an inducement for the seller to finance the sale. Balloon payments have terms that usually average from 3 - 7 years. This allows the buyer the time to pay down the principle and build enough equity to refinance the property and pay off the balloon payment.
Mortgaging-Out... This procedure requires a small cash down payment of approximately 5%. The buyer obtains a 95% first mortgage and arranges for the seller to give him a note for 20% of the purchase price back at the closing. Lets take a look at an illustration:
Property value: $120,000
Purchase Price: $100,000
5% down payment: $5,000
1st Mortgage: $95,000
20% seller financing: $20,000
Buyer receives "cash-out" of $20,000 at closing. He recoups his initial investment and a $15,000 profit at the time of purchase. This is a powerful technique for building a fortune in real estate holdings. This method of buying works best with income producing properties. The entire transaction is achieved with no investment and the debt service is paid from the rental income.
Price Vs. Terms... To obtain "no money down" real estate you must be willing to pay full price for a property in order to obtain favorable terms. Seldom if ever will a seller agree to both finance the sale and accept a discounted sale price. From a buyer's prospective, "cash is king" you should use it sparingly.
Sweat Equity... If a property is in disrepair, the down payment can be in the form of rehabilitating the property. As it is difficult to obtain financing on property that is in poor condition, the close of escrow and transfer of title do not occur until the work is completed. The improvements increase the value of the security allowing the seller to finance the down payment requirements.
Land Contract or Contract For Deed... This method is known as separating the land from the building. The seller is secure by retaining title to the land. The agreement should include an option to buy the land for cash within a stated period of time. If property values increase, you will be able to refinance the property to include the land and building and end up in the same position as if you had purchased the land and building together. By separating the land from the building you are offering the seller security in place of a down payment.
Wraparound Mortgage... This type of mortgage is usually at a higher interest rate and does not payoff the existing mortgage. Payments are made to an escrow agent who pays the 1st mortgage payment and the difference to you the seller. No down payment is required. Using a wraparound mortgage, it is entirely possible to purchase a property at full price and immediately sell it for a higher price collecting the difference in monthly payments for years to come. It is the buying on favorable terms that creates this valuable profit opportunity.
Buying with Bad Credit... Bad credit cannot stop you from buying real estate. The following are some of the ways to accomplish this:
No money down investing offers the ultimate in flexibility and safety for obtaining financial independence. With no cash down payment, no mortgages or credit checks, it is a powerful tool for today's investor. There are hundreds of ways to make large and consistent profits investing in real estate, and only one of them requires cash.
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